Should You Buy It? Impax Labs

By David Peltier
Portfolio Manager
11/5/2009 11:45 AM EST
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Generic drugmaker Impax Laboratories (IPXL - commentary - Trade Now) appears to be flying under the market radar. On Tuesday, the company posted third-quarter earnings of 11 cents a share, handily exceeding the consensus analyst estimate of 5 cents a share. Revenue also grew 77% year over year to $64.9 million.



Even so, at Wednesday's closing price of $9.42, the stock is lagging the broader market averages, up just 8% year-to-date.

With that in mind, I'm here to answer readers' questions: Should you buy it? Does Impax offer value at current levels, or should investors focus elsewhere?

Wednesday was the first anniversary of President Obama's election victory, which is relevant because the generic drug space has steadily been gaining mindshare ever since. While no health care bill has been passed by Congress to date, there's little denying that generic medicines are a quick way to lower expenses for patients.

The newest driver for Impax is a generic version of Shire's (SHPGY - commentary - Trade Now) that launched last month. Additionally, the company reached a settlement in October to launch a generic version of Flomax next March, ahead of its competitors.

Generic margins improved during the quarter and could receive a further boost in the future from new manufacturing facility in Taiwan the company built recently.

Impax also has an attractive pipeline of its own potential branded drugs. The company just started a second phase III trial for its lead candidate, which is a treatment for Parkinson's disease.

The combination of these items is expected to drive Impax's earnings to 71 cents a share in 2010, nearly triple the 2009 consensus analyst estimate for a profit of 24 cents a share. Based on the average 17 times P/E multiple in the generic drug industry, the stock could be worth up to $12 a share over time.


I think PRX is being taken over at $23 go for $35